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Tight Stock Position To Sustain Sugar Prices In The Near Term: Icra

Domestic sugar prices are likely to remain firm in the near term, given the tight stock position in the domestic and global markets, says rating agency ICRABSE -0.80 % adding that the possibility of a price hike cannot be ruled out in the forthcoming sugar year (SY) 2018 if further import of duty free sugar is permitted.

The Central government had earlier allowed duty free raw sugar imports of 0.5 million tons (MT) to keep sugar prices in check.

Sabyasachi Majumdar, senior vice-president and group head, ICRA Ratings, said, “While the sugar prices declined marginally during November-December 2016 following demonetisation, sugar prices have recovered to around Rs 36,500-37,000/MT in January-March 2017 due to the tight sugar stock situation.”

The agency anticipates a 3-4% decline in domestic sugar consumption during the SY2017, though that is unlikely to affect sugar prices, at least during SY2017, as the impact of the decline in the domestic sugar consumption is likely to be more than offset by a higher-than-expected decline in sugar production.

Also, “post the announcement of allowance of duty free raw sugar imports, there has not been a significant decline in sugar prices, which are hovering between Rs 36,000-36,500/MT in April 2017,” said Majumdar.

ICRA estimates domestic sugar production to decline by around 19% to 20.3 MT during SY2017, when compared to SY2016, driven by a significant decline in sugar production in key sugar-producing states of Maharashtra and Karnataka due to poor rainfall during previous monsoon seasons. As for consumption, the same is expected to decline by 4% to around 24 MT during SY2017, when compared to SY2016. Including 0.5 MT of imported sugar, the closing stocks for the current season are estimated to be around 4.5-5 MT, which would be sufficient to meet the requirement of around two months of domestic consumption. This is still much lower than the previous year’s closing stock level of 7.7 MT.

While healthy sugar prices are likely to support the profitability of the UP-based sugar mills, the western and southern mills would continue to be impacted by low cane crushing volumes during SY2017, said the ICRA report.